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BRP Group, Inc.

First Quarter 2022 Earnings Conference Call

May 9, 2023

BRP Group, Inc. - First Quarter 2023 Earnings Conference Call, May 9, 2023

C O R P O R A T E P A R T I C I P A N T S

Bonnie Bishop, Executive Director, Investor Relations

Trevor Baldwin, Chief Executive Officer

Brad Hale, Chief Financial Officer

Kris Wiebeck, Chief Strategy Officer

C O N F E R E N C E C A L L P A R T I C I P A N T S

Meyer Shields, KBW

Elyse Greenspan, Wells Fargo

Adam Klauber, William Blair

Pablo Singzon, JPMorgan

Josh Shanker, Bank of America Merrill Lynch

Weston Bloomer, UBS

P R E S E N T A T I O N

Operator

Greetings, and welcome to the BRP Group, Inc. First Quarter 2023 Earnings Call.

At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Bonnie Bishop, Executive Director, Investor Relations. Please go ahead, ma'am.

Bonnie Bishop

Thank you, Operator.

Welcome to the BRP Group's First Quarter 2023 Earnings Call. Today's call is being recorded.

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BRP Group, Inc. - First Quarter 2023 Earnings Conference Call, May 9, 2023

First quarter financial results, supplemental information and Form 10-Q were issued earlier this afternoon and are available on the Company's website at ir.baldwinriskpartners.com.

Please note that remarks made today may include forward-looking statements subject to various assumptions, risks and uncertainties. The Company's actual results may differ materially from those contemplated by such statements. For a more detailed discussion, please refer to the note regarding forward-looking statements in the Company's earnings release and to our most recent Form 10-Q, both of which are available on the BRP website.

During the call today, the Company may also discuss certain non-GAAP financial measures. For a more detailed discussion of these non-GAAP financial measures and historical reconciliation to the most closely comparable GAAP measures, please refer to the Company's earnings release and supplemental information, both of which have been posted on the Company 's website at ir.baldwinriskpartners.com.

Also, I would like to remind everyone that, effective January 1, 2023, and as reflected in our reporting for the quarter, BRP now operates with three segments, versus the four we have reported on historically, as our legacy Medicare segment was merged into Mainstreet Insurance Solutions. Additionally, our legacy Middle Market segment has been rebranded to Insurance Advisory Solutions, and our legacy Specialty segment has been rebranded to Underwriting, Capacity & Technology Solutions.

I will now turn the call over to Trevor Baldwin, Chief Executive Officer of BRP Group.

Trevor Baldwin

Thanks, Bonnie.

Good afternoon, everyone, and thank you for joining our First Quarter Earnings Call.

I will start with a few remarks, followed by Brad, who will address select financial and business highlights from the quarter. Then, Brad, Kris and I will answer questions.

We had a strong start to the year, highlighted by organic growth of 23%, building on 16% organic growth in the first quarter of 2022, and representing the highest first quarter organic growth since our IPO, driven by outstanding performance across our business. We achieved total revenue growth of 36% year-over- year, showcasing the continued strong client demand for our advice and solutions across the platform. Adjusted EBITDA was $79 million, in line with our expectations.

Insurance Advisory Solutions, formerly Middle Market, had strong organic growth of 14%, benefiting from robust new business and rate and exposure lift that exceeded expectations. Underwriting, Capacity & Technology Solutions, formerly our Specialty segment, grew 56%, and our MGA of the Future platform again performed exceptionally well. Standouts included outstanding growth in our multifamily product suite, continued acceleration in the buildout of our homeowners business, and outsized growth from our habitational-focused commercial umbrella program that joined MSI via our 2021 partnership with JGS, that now fully flows through organic growth. In Mainstreet Insurance Solutions, we saw organic growth of 20% in the first quarter.

Additionally, Westwood, which joined in May of 2022, as the largest acquisition in the history of BRP, continues to perform exceptionally well, despite headwinds in the U.S. residential real estate market. Through the end of April, which represents their first full year with BRP, Westwood generated approximately $112 million of annualized gross revenue, up 36% from the $82 million run rate that we underwrote at the time of the closing last year. Year one of the Westwood partnership has been a

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BRP Group, Inc. - First Quarter 2023 Earnings Conference Call, May 9, 2023

significant success, and is a testament to the strength of the franchise Alan and his team have built. We believe the Westwood team has a very bright future ahead.

Over the past three years, we've invested heavily in building capabilities that will power long-term organic growth and free cash flow generation. These investments included the addition of many talented colleagues and a significant technology buildout to position us for a more digital and tech-enabled future. To frame the significance of the scale of these investments, we more than doubled the size of our colleague base over the past two years, adding approximately 1,000 net new colleagues per year.

As I shared during our call in February, we have concluded this major reinvestment cycle in our business and shortly will have fully absorbed the run rate payroll from prior year headcount growth. While we are just beginning to see the benefits of these investments in our organic growth, we expect to begin seeing these investments earning-into our margin and earnings profile this year, and believe that the structural advantages these investments have enabled will yield sustainable revenue growth and operational efficiency over the long term.

To give you a sense for the more normalized rate of growth in headcount necessary to sustain our top line growth momentum, through the first four months of 2023, we added a net total of approximately 40 new colleagues, which represents a rate that we believe is sufficient to support our current top line growth trajectory for the next 18 to 24 months.

Additionally, we continue to remain opportunistic with respect to the M&A marketplace, but reaffirm that we do not currently expect to execute any material partnerships in 2023, as we remain committed to deleveraging and continue to expect the market to soften over the balance of 2023, a trend we are starting to see. Price transparency takes time, and it is our current belief that if we are patient, we will see a better environment into which we can put shareholder capital to work.

In summary, we once again delivered high organic growth, a direct result of the value our colleagues continue to deliver to clients day-in and day-out. Despite stress in certain areas of the insurance marketplace, our diversified and resilient business model continues to allow us to execute for all our stakeholders. I'd like to thank our clients for their trust and confidence, and our colleagues for tirelessly driving the positive client outcomes that result in our strong performance.

With that, Brad will detail our financial results.

Brad Hale

Thanks, Trevor, and good afternoon, everyone.

For the first quarter, we generated revenue growth of 36% to $330 million. We generated organic growth in the first quarter of 23%, with all three reporting segments generating double-digit organic growth in the quarter. In Q1, we paid down the revolver by $20 million. Looking through the balance of the year, we expect the combination of our organic growth and continued free cash flow generation will reduce leverage to 4.5 times, or less, back within our stated long-term range.

We recorded a GAAP net loss for the first quarter of $25.9 million, or $0.24 per fully diluted share. Adjusted net income for the first quarter of 2023, which excludes share-based compensation, amortization and other one-time expenses, was $49.2 million, or $0.42 per fully diluted share. A table reconciling GAAP net loss to adjusted net income can be found in our earnings release and our 10-Q filed with the SEC.

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BRP Group, Inc. - First Quarter 2023 Earnings Conference Call, May 9, 2023

Adjusted EBITDA for the first quarter rose 8% to $79 million, compared to $73 million in the prior year period. Adjusted EBITDA margin was 24% for the quarter, compared to 30% in the prior year period. This margin decline was due to the change of seasonality in our business and recognizing a significant proportion of the approximately $46 million of incremental annualized payroll expense from prior year headcount growth that had not yet been fully absorbed. The changes in seasonality are primarily due to the Westwood partnership, as well as large partnerships closed in the fourth quarter of 2021, that have resulted in Adjusted EBITDA margin that is now approximately six points lower in Q1, and which we expect to be higher for the remaining quarters, resulting in full year margin expansion.

For the full year 2023, we now expect organic growth in the mid-teens, higher than our previous guidance of the high-end of 10% to15%, and which, based on the performance we are seeing across our business year to date, includes an expectation for mid-teens organic growth in Q2. Additionally, we now expect full year revenue of $1.16 billion to $1.19 billion, higher than the previously stated range of $1.14 billion to $1.17 billion, and we are raising our Adjusted EBITDA expectation to $255 million to $265 million, up from $250 million to $260 million, stated previously. For the second quarter of 2023, we expect Adjusted EBITDA to be between $55 million to $60 million and Adjusted EPS of $0.27 to $0.29 per share.

These expectations reflect strong growth despite our anticipation of a continued challenging macro backdrop, which includes the potential for ongoing dislocation in the banking system and potential for pullback in credit from impacted institutions, as well as higher interest rates relative to recent years. Despite these headwinds, we delivered record first quarter 2023 results, which reinforce our confidence that the investments of the last few years will drive operating leverage, revenue growth and durable cash flow for years to come.

We will now take questions. Operator?

Operator

Thank you, sir. We will now be conducting a question-and-answer session. (Operator Instructions) One moment, please, while we poll for questions.

The first question we have is from Meyer Shields from KBW. Please go ahead.

Meyer Shields

Great, thank you. Trevor, if I could start, you talked about expectations of continued softening, and I was hoping you could flesh that out a little bit. Because, while some of that seems to be manifesting in, let's say, D&O, there are also sort of widespread expectations of a reaccelerating hard market in property. I was hoping you could break down what you're seeing right now in that context.

Trevor Baldwin

Hey, Meyer, good evening. The softening was a comment specific to pricing in the M&A marketplace relative to valuation, and so what I would say about that is that, while headline multiples being paid have not really come down meaningfully, what we have seen is that pro forma EBITDA margin that deals are transacting off of has compressed approximately 300 basis points, based on the data that we've seen. So, while not a headline multiple compression, it does-that is a reduction in price.

I think, to your point on insurance pricing, I'd say there's some limited pockets of softening a la public D&O, workers compensation, but, broadly speaking, I'd say the property insurance marketplace is the most challenging our professionals have seen in their career, and insurance lines, generally speaking, are all seeing positive pricing pressure.

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ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.

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